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Loan clampdown helping house prices: RBA

Moves by regulators to tighten mortgage lending standards are working and have helped ease Australia's overheated property market, the Reserve Bank says.

The central bank maintained its view that key risks to the country's financial system stem from high levels of household borrowing and warned that an increase in interest rates could hit heavily-indebted households, but also said it has seen a moderation in riskier types of lending.

Investor lending has slowed significantly across all states as a result of steps by the Australian Prudential Regulation Authority (APRA) to restrict growth in loans, the RBA said in its half-yearly Financial Stability Review on Friday.

"A range of factors have contributed to the slowing, including increased housing supply, higher interest rates for some borrowers and an apparent reduction in demand from foreign buyers."

APRA in March told lenders to limit higher risk interest-only loans, which set off a fresh round of rate increases by the major banks, raising the costs for speculative property investors.

While house prices have continued to remain high, data showed this week that the national median house price fell during the September quarter - the first quarterly fall recorded since December 2015.

The central bank again singled out Brisbane's apartment market as a weak link, saying the increase in supply has resulted in falling prices and no growth in rents there.

However, there are few signs of settlement defaults on purchased properties so far, it said.

That situation could change in the event of interest rates rising.

"Higher interest rates, or falls in income, could see some highly indebted households struggle to service their debt and so curtail their spending," , the Reserve Bank said.

Economists widely expect the RBA to start lifting rates from a record low of 1.5 per cent by the middle of next year but some are betting the change could flow through sooner if economic growth and inflation show signs of improvement.

The central bank said conditions in retail property markets across Australia have been subdued, with rents staying flat and price growth lagging that of other commercial property segments.

Banks have expressed concern over the outlook for the retail sector due to rising competition, changing consumer preferences and the failures of some well-known retailers, it said.

However, Australia's financial system remains in an overall strong position and its resilience to shocks has increased over recent years, boosted by high profit levels at banks even as bad and doubtful debts remain around historical lows, the central bank said.